New forecasts may put policy pressure on Draghi

New projections from the European Central Bank today will probably point to euro zone inflation remaining below target into 2015, raising pressure on the bank to take fresh action to stimulate the economy next year.

The ECB is widely expected to leave interest rates unchanged at its final policy meeting of this year, which got under way at 0800 GMT, after surprising markets last month with a cut in its main rate to a record low of 0.25 percent.

With governments often slow to respond to the euro zone crisis, the bank has played a major role in bringing the bloc back from the brink of break-up, but it now faces resistance to further action from its German-led hawkish minority.

November’s cut followed a fall in euro zone inflation to 0.7 percent in October – far below the ECB’s target of just under 2 percent. It has since picked up to 0.9 percent and unemployment fell in October, offering the ECB a reprieve.

“Mario Draghi is action man,” Berenberg bank economist Christian Schulz said of the ECB president. “If he sees a need for action, then he acts … but the opportunity to do more simply isn’t there because the data has improved.”

At his 1330 GMT news conference, Draghi will present updated projections from the ECB’s staff, which will include their first forecasts for 2015.

The new estimates will give markets insight into the ECB’s view on inflation over the medium term, the horizon over which it aims to deliver price stability in line with its target.

Should the new projections point to price growth still clearly undershooting the ECB’s target in 2015 – analysts expect a forecast of 1.3 or 1.4 percent – expectations will grow that the bank will take fresh action early next year.

Schulz expected the new forecasts to show inflation remaining below the ECB’s target in 2015.

“That will raise questions next time Draghi goes to the European Parliament as to why they are not doing more to achieve their own target, and could raise the pressure on the ECB to do more over the coming months,” he said.

However, the ECB’s hawks would resist further easing. Source: Reuters.